Wednesday, March 7, 2012

Managing P.O. Formats for Multiple Countries.

I was contacted by someone asking my advise about purchase order terms and how many different versions you should have if you have operations in multiple countries. I’ve seen a variety of approaches but I prefer simplicity.

I recommended having two basic versions of purchase orders. One would be for international purchases and the other would be for local purchases. The local version would be based off the international form but tailored to meet laws, business practices of that country. The local team would add what is needed to comply with those laws, write it in their local language and be responsible to maintain and update that form. For that purchase order form you would also want the applicable law and jurisdiction to be that country. Each country would have their local version.

The reason why I recommend an international purchase order form is because most suppliers will not sell on terms where the sale would be a local sale in another country. For it to be a local sale, the supplier would need to be registered to do business within that country and they would be subject to local laws and local taxes. So the actual point of sale is usually the supplier's dock or stocking hub prior to importation, and that makes the Buyer responsible for import. Since the supplier is not conducting business in that country they not making a local sale and they do not have to comply with any local laws. As the importer of record, the buyer you need to ensure that what you are buying and importing does comply with those local laws.

The primary concern would be to make sure that the supplier agrees that the product or equipment you are buying complies with local laws such as environmental laws like RoHS (Restriction on Hazardous Substances that is enacted in the EEC). If you were buying anything related to communications you would also want them to comply with what is called “homologation laws” that apply when devices are connected to local communications or phone networks.

If you have a limited number of locations that buy items you could probably include a catch all phrase in the international purchase order such as "At the time of shipment Supplier warrants that the Product complies with the applicable laws of ___________, _____________. and ___________. that are required to import, and use the Product." If you were purchasing the item to resell, you would expand the scope to address those needs. If the supplier routinely sells into those locations through subsidiaries or distributors they should know what those laws are and not have a problem with that.

The international purchase order would be your standard terms and conditions with the requirement that the product itself must comply with local laws of the specified countries.
For the international purchase order I would pick the applicable law and jurisdiction that I
was most comfortable with which would mean that applicable law used in the parent company agreements. Making it the local law for the individual country doesn’t provide you with an advantage. If they don’t have a legal presence in that country you can’t force them into court in that country. Subsidiaries are separate legal entities and if your order is with a parent or other subsidiary company, you can’t go against the local subsidiary on a contract with a different legal entity. If you are buying through a supplier subsidiary in your local country that would be a local sale.

For simplicity you could post all of the different versions on the internet and the point to the URL in the P.O. form and have the URL specify something to the effect that for intra-country purchases the applicable local law version applies and for inter-country purchases the international one applies.